If this scares you, you shouldn’t be investing

There are a lot of things to worry about as an investor. Hackers aren’t one of them. Last week, hacker magazine 2600 described what a potential cyber attack on global stock markets could look like. It wrote (via Business Insider): Now imagine this attack scenario. Agents of an enemy of the United States successfully break into the mainframes of a High Frequency Trading Company, Dark Pool Crossing Network, or Brokerage Company. They infect the system with rogue trading algorithms or change the code on currently deployed algorithms. In a single coordinated attack, they buy and sell millions of shares of…

Each one pays a fully franked dividend. The names of these Top 3 ASX Blue Chips are included in a specially prepared FREE report. But you will have to hurry. Depending on demand – and how quickly the share prices of these companies moves – we may be forced to remove this report.

There are a lot of things to worry about as an investor. Hackers aren’t one of them.

Last week, hacker magazine 2600 described what a potential cyber attack on global stock markets could look like. It wrote (via Business Insider):

Now imagine this attack scenario. Agents of an enemy of the United States successfully break into the mainframes of a High Frequency Trading Company, Dark Pool Crossing Network, or Brokerage Company. They infect the system with rogue trading algorithms or change the code on currently deployed algorithms. In a single coordinated attack, they buy and sell millions of shares of a single company or multiple companies, causing trading to halt or decimating the value of a single stock. Multiply that by 100 stocks of the top Fortune 500 companies and we have market collapse. Trading for the day would halt and uncalculated economic damage would be done.

Scary stuff — until you get to the last sentence, which tiptoes into the absurd: “Uncalculated economic damage would be done.”

Stop, stop. No, it wouldn’t.

The market is a thermometer. If your thermometer breaks and says it’s 300 degrees outside, it isn’t actually 300 degrees outside, and no one will actually burn to death. This is obvious when thinking about temperature, but it becomes easy to forget when thinking about stock prices and the businesses they measure. Money is just emotional like that.

To assume a hacker-driven market crash would cause vast economic damage, you have to assume that day-to-day stock prices have an influence on the businesses they represent. But they do not. It’s the other way around — the underlying businesses are what drive stock prices. In a hacker attack, Coca-Cola stock might temporarily fall to $0, but Coke isn’t going to stop selling Coke, the bakery won’t stop selling bread, and brick layers won’t stop laying bricks. Things would get real itchy on Wall Street exchanges, but broad business values and economic activity wouldn’t change an inch.

Last week, the Nasdaq experienced a technical snafu that halted trading in all the stocks listed on its exchange for three hours. What impact did it have on the economy? Nothing, really. A few Nasdaq executives might lose their bonuses, and a few day traders might have been left hanging. The economic damage of both was likely offset by journalists having something new to write about.

We don’t have to guess what an attack shutting down the stock market might do to the economy. We’ve experienced it. U.S. markets closed for six days following the 9/11 terrorist attacks. And while the actual terrorist attacks affected all kinds of businesses — airlines and theme parks and such — I can’t think of a good argument for why keeping the market closed for a few days led to a measurable drop in economic activity. After the Flash Crash of 2010 sent the Dow Jones down 1,000 points before rebounding, a group of Motley Fool writers set out to find anyone — investors or otherwise — who had been negatively affected by the incident. They couldn’t find one. Most investors didn’t even realise it happened until long after it was over and stocks recovered. Of course, most people aren’t concerned when the market remains closed every Saturday and Sunday. It causes no problems for the same reason a hacker crash would have no direct impact on economic activity: There is a vast difference between stock quotes, business values, and economic activity.

One of the most fundamental traps investors fall for is not realising the difference between business values and stock prices. Business values are driven by human ingenuity, creativity, brand awareness, patents, contracts, and ideas. Stock prices are just short-term quotes on what other people are willing to pay for those assets at a given moment. When you conflate the two, you become a victim to the stock market’s ups and downs rather than a beneficiary of a business’s profits.

Cyber attacks could wreak havoc on the economy if targeted at actual commerce: Supply chains, energy pipelines, or payment systems, for example. That’s what people should worry about. But as Warren Buffet says, you should buy companies you’d be happy owning if the market shut down for the next decade. Bring it on, hackers.

The Australian Financial Review says “good quality Australian shares that have a long history of paying dividends are a real alternative to a term deposit.” Get “3 Stocks for the Great Dividend Boom” in our special FREE report. Click here now to find out the names, stock symbols, and full research for our three favourite income ideas, all completely free!

Each one pays a fully franked dividend. The names of these Top 3 ASX Blue Chips are included in a specially prepared FREE report. But you will have to hurry. Depending on demand – and how quickly the share prices of these companies moves – we may be forced to remove this report.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.

EXCLUSIVE FREE REPORT

NEW: Top 3 ASX Dividend Shares To Buy For 2019

Free report names the 3 dividend shares The Motley Fool's crack team think you should buy now for 2019 and beyond.

Sign up now for instant access to your copy of this free report.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe at anytime. Please refer to our Financial Services Guide (FSG) for more information.